Correlation Between Direct Line and LIFENET INSURANCE

Can any of the company-specific risk be diversified away by investing in both Direct Line and LIFENET INSURANCE at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Direct Line and LIFENET INSURANCE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Direct Line Insurance and LIFENET INSURANCE CO, you can compare the effects of market volatilities on Direct Line and LIFENET INSURANCE and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Direct Line with a short position of LIFENET INSURANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and LIFENET INSURANCE.

Diversification Opportunities for Direct Line and LIFENET INSURANCE

-0.27

Correlation Coefficient

Direct Line  LIFENET INSURANCE

Very good diversification

The 3 months correlation between Direct and LIFENET is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and LIFENET INSURANCE CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LIFENET INSURANCE and Direct Line is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Direct Line Insurance are associated (or correlated) with LIFENET INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LIFENET INSURANCE has no effect on the direction of Direct Line i.e., Direct Line and LIFENET INSURANCE go up and down completely randomly.

Pair Corralation between Direct Line and LIFENET INSURANCE

Assuming the 90 days trading horizon Direct Line is expected to generate 1.99 times less return on investment than LIFENET INSURANCE. In addition to that, Direct Line is 1.18 times more volatile than LIFENET INSURANCE CO. It trades about 0.05 of its total potential returns per unit of risk. LIFENET INSURANCE CO is currently generating about 0.11 per unit of volatility. If you would invest  665.00  in LIFENET INSURANCE CO on September 4, 2024 and sell it today you would earn a total of  575.00  from holding LIFENET INSURANCE CO or generate 86.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Direct Line Insurance  vs.  LIFENET INSURANCE CO

Direct Line Insurance

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

LIFENET INSURANCE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LIFENET INSURANCE CO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, LIFENET INSURANCE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Direct Line and LIFENET INSURANCE

The main advantage of trading using opposite Direct Line and LIFENET INSURANCE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line position performs unexpectedly, LIFENET INSURANCE can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in LIFENET INSURANCE will offset losses from the drop in LIFENET INSURANCE's long position.

The idea behind Direct Line Insurance and LIFENET INSURANCE CO pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.